06 March 2018

Temporary Eurobill Fund (TEF): 30 FAQs

The Temporary Eurobill Fund offers a modest, technical but concrete step that can be expanded progressively into a financial, economic and political structure if circumstances develop propitiously. If they do not, then it can easily be wound down again ad extinguished within two years.

Version 1.0

1.      What is the TEF Plan?

The principles required for progress in deepening EMU are clear and include:

·         No mutualisation of debts.

·         Respect for the post-crisis economic governance system (Maastricht 2.0).

·         A proper role for market discipline.

·         “Safe asset” to reduce the `doom loop’ between banks and their government.

·         “Risk Free Rate” yield curve to support CMU.

·         Financial solidarity with states that respect the rules yet lose market access.

The TEF is a simple “plainest of plain vanilla” plan:

·         For a common institution created by participating Eurozone states to purchase the under-two year debt issuance of those states.

·         The institution would finance such purchases by issuing its own bills - matching its assets in overall volume and maturity. “Back to Back” market finance for absolute simplicity and transparency.

·         The TEF is a replacement of existing debt, rather than a mechanism to increase debt.

·         Why two years? Nothing magical… (i) Seems long enough to give a state in difficulties time to realise and begin to change before markets cut off access (ii) enough issuance to become a major market sector.

·         The TEF will charge all borrowers an identical interest rate for a given maturity.

·         The TEF’s legal structure would replicate the tried and tested ESM Treaty. It would not require a change to EU Treaties so could be set up very quickly.

·         Governance is inter-governmental – not Communautaire at this stage.

·         If it did not prove effective, then it would cease to issue new bills and most of its bills would have run off within a year, and completely within two years.

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© Graham Bishop